1 AHIP Comments to House Ways and Means Committee Work Groups Urging Repeal of the ACA Health Insurance Tax April 12, 2013 I. Introduction America s Health Insurance Plans (AHIP) is the national trade association representing health insurance plans. Our members provide health and supplemental benefits to more than 200 million Americans through employer-sponsored coverage, the individual insurance market, and public programs such as Medicare and Medicaid. AHIP advocates for public policies that expand access to affordable health care coverage to all Americans through a competitive marketplace that fosters choice, quality, and innovation. We applaud the committee for pursuing comprehensive tax reform to provide greater fairness for the American people while also simplifying, modernizing, and streamlining the tax code. As you focus on these goals, we believe it is critically important to ensure that the tax reform effort in Congress includes repeal of the health insurance tax that was established by the Affordable Care Act (ACA). The ACA health insurance tax, if allowed to take effect, will undermine efforts to control costs and provide affordable coverage options to the American people. The tax will be particularly painful for vulnerable populations, including consumers who buy coverage on their own, small business owners who struggle to provide coverage to their employees, seniors who rely on the Medicare Advantage program as a health care safety net, and low-income people who are served by state Medicaid programs. Repealing the tax as part of a comprehensive tax reform bill will be an important step toward protecting these vulnerable populations from higher health care costs, while at the same time introducing greater fairness to the tax code. Our comments in this paper examine the basic structure of the ACA health insurance tax, who it affects, the extent to which it will impact premiums, and bipartisan legislation that has been introduced in the House to repeal this harmful tax.
2 II. Background on the ACA Health Insurance Tax Beginning in 2014, the ACA will impose a new health insurance tax that will exceed $100 billion over the next ten years. The tax is set at $8 billion in 2014, $11.3 billion in 2015 and 2016, $13.9 billion in 2017, and $14.3 billion in In subsequent years, the tax will increase annually based on premium growth. The health insurance tax will be imposed broadly on health insurance providers, based on their market share, and will impact the following: (1) businesses and public employers that purchase health insurance on a fully insured basis, including small businesses that provide coverage; (2) all individuals and families who purchase coverage in the individual market or through an Exchange; (3) Medicare beneficiaries who enroll in Medicare Advantage health plans or Medicare Part D prescription drug plans; and (4) state Medicaid programs that contract with managed care organizations. The heavy burden of this new tax can be seen in the pie chart below, which shows that the ACA health insurance tax is almost three times larger than the ACA tax on prescription drug manufacturers and importers and more than three times larger than the ACA tax on medical device manufacturers. All three taxes will result in higher health care costs for the American people. The health insurance tax is particularly burdensome not only because of its size, but also because it is not deductible for income tax purposes. This means that health plans must pay the tax and then also pay federal, state and local taxes on the taxed amount. Douglas Holtz-Eakin, President of the American Action Forum, testified 1 at a recent congressional hearing that because the ACA 1 Testimony by Douglas Holtz-Eakin, President of the American Action Forum, before House Ways and Means Subcommittee on Oversight on March 5, This point is also made by the October 2011 Oliver Wyman study (see footnote 3). 2
3 health insurance tax is not deductible, the potential impact of the tax on premiums will be 54 percent larger than the dollar amount of the tax. III. Impact of the ACA Health Insurance Tax While the ACA health insurance tax is assessed on health plans, experts agree that it will impact consumers and employers that purchase coverage directly from health insurance plans in the individual and group markets as well as beneficiaries in public programs. The Congressional Budget Office (CBO) has stated that this tax will be largely passed through to consumers in the form of higher premiums. 2 The magnitude of the expected premium increase is addressed by a pair of actuarial studies that have been conducted by the Oliver Wyman firm and commissioned by AHIP. The first study 3 examined the impact the premium tax will have from a nationwide perspective on individual market consumers, employers, Medicare Advantage enrollees, and state Medicaid programs. A second study 4 provides state-by-state data on the impact of the tax in all 50 states. The Oliver Wyman analysis concluded that the health insurance tax alone will increase the cost of family coverage in the individual market by $270 in 2014 and by an average $5,080 over the ten-year period of The study also estimated that the health insurance tax will increase the cost of family coverage in the small group market by $360 in 2014 and by an average of $6,830 over the same ten-year period. These findings are reinforced by Congress Joint Committee on Taxation (JCT) 5, which has estimated that repealing the health insurance tax could decrease the average family premium in 2016 by $350 to $400. Focusing specifically on the Medicare Advantage (MA) program, the Oliver Wyman study found that the health insurance tax will increase costs for MA enrollees by $16 to $20 per month in 2014 and by $32 to $42 per month by The average expected increase in the cost of MA coverage over ten years is $3,590. This number represents a direct reduction in the resources that will be available to support the health care benefits of 14 million seniors and persons with disabilities who value the improved quality of care, additional benefits, and innovative services their MA plans provide. Additional costs will be imposed on Medicare Part D plans, for which the health insurance tax will increase premiums by an estimated $9 in 2014 and $20 in 2023 for a total increase of $161 over 10 years. 2 CBO letter to Sen. Even Bayh. An Analysis of Health Insurance Premiums Under the Patient Protection and Affordable Care Act. 30 November Carlson, Chris. Estimated Premium Impacts of Annual Fees Assessed on Health Insurance Plans. Oliver Wyman. October Carlson, Chris. Annual Tax on Insurers Allocated by State. Oliver Wyman. November See JCT Letter to Senator Jon Kyl. 12 May
4 We also are deeply concerned by estimates in the Oliver Wyman study that the health insurance tax will put greater pressure on state Medicaid budgets by increasing the average cost of Medicaid coverage by an estimated $1,530 per enrollee between In several states (see chart on next page), the impact on the cost of Medicaid coverage will exceed $2,200 per enrollee over ten years. Taking such a significant level of resources away from Medicaid at a time when most states are implementing major expansions in Medicaid eligibility is a shortsighted move that may compromise access to health care services for millions of vulnerable people. Oliver Wyman s state-by-state findings provide additional information showing which states will be most severely impacted by the ACA health insurance tax. The charts below highlight the top five states with the highest per-person cost impact in each market segment. These charts show, for example, that families purchasing coverage in the individual market will be hit the hardest in New York while those getting coverage from a small employer will be most impacted in West Virginia. With respect to public programs, Medicare Advantage enrollees in New Jersey and the Medicaid managed care program in Washington, DC will be hardest hit by the new tax. 4
5 Additional research 6, conducted by the NFIB Research Foundation, measures the impact the ACA health insurance tax will have on private sector employment and economic productivity. This study examines two potential scenarios: If the health insurance tax equals 3 percent of premiums, there will be between 175,000 and 262,000 fewer private sector jobs in 2022 and, additionally, real GDP is forecast to be $23 billion to $35 billion lower in 2022 than it otherwise would be without the tax. If the health insurance tax equals 2.5 percent of premiums, there will be between 146,000 and 219,000 fewer private sector jobs in 2022 and, additionally, real GDP is forecast to be $19 billion to $29 billion lower in 2022 than it otherwise would be without the tax. Below is an infographic which provides a visual presentation of the findings reported by Oliver Wyman and the NFIB Research Foundation: 6 Michael J. Chow, Effects of the PPACA Health Insurance Premium Tax on Small Businesses and Their Employees: An Update. NFIB Research Foundation. March 19,
6 IV. The Solution: Jobs and Premium Protection Act To avoid the increased costs that would result from the ACA health insurance tax, we strongly support legislation, H.R. 763, which would repeal the tax. This bipartisan bill, the Jobs and Premium Protection Act, was introduced in February 2013 by Reps. Charles Boustany (R-LA) and Jim Matheson (D-UT). To date, 110 House members have cosponsored this bill, including 14 members of the House Ways and Means Committee. Enacting this repeal bill as part of a comprehensive tax reform package will be an important step toward restoring fairness to the tax code and protecting vulnerable populations from a costly and burdensome tax. At the same time, repealing the ACA health insurance tax will advance the committee s goals of achieving a simplified, modernized, and streamlined tax system. We look forward to working with the committee to address this important priority as the congressional debate on tax reform moves forward. 6